Dr Pierre Baret is Professor of Economics, Sustainable Development and CSR at Excelia Business School, located in La Rochelle France.
In this interview with TheCSRUniverse, he brings in fresh perspective on CSR laws in India, the concept of ‘triple capital’, need to overhaul the accounting standards while measuring impact of social projects and much more.
While highlighting the ‘triple capital’ – human capital, natural capital, financial capital- accounting, he advises that any damage caused to one of the capitals (e.g. loss of biodiversity, deterioration of employee health) cannot be compensated for in financial terms. He strongly suggests that a responsible company must do everything within its power to preserve human capital, as well as natural capital.
Scroll down to read his insightful thoughts in this interview:
TheCSRUniverse Interview with Dr Pierre Baret, Professor of Economics, Sustainable Development and CSR, Excelia Business School
Q: Many companies today bend their CSR agenda as per the marketing call of their products. What is your observation on that? Can we justify it as strategic CSR?
A: There is growing public awareness about the importance of sustainable development issues. Consumers are therefore paying increasing attention to purchasing goods and services that emanate from a source that respects both the workers and nature. Companies have clearly understood this and, as a result, this is a strong incentive for them to be socially and environmentally responsible.
In this respect, you could say that CSR is a form of utilitarian or even opportunistic strategy. However, we should look at the positive side of the equation: it encourages companies to behave in a more responsible way. However, we shouldn’t be overly naive. We have to make sure that this commitment to responsibility is genuine, and that it is not simply a question of marketing or ‘greenwashing’.
Q: Do you think that CSR activities of a company must align with the Sustainable Development Goals defined by the United Nations? Why?
A: Today, the 17 Sustainable Development Goals (SDGs) are a relatively straightforward and comprehensive way of formalising the challenges of sustainable development. They help to illustrate the fact that sustainable development covers issues as diverse as education, access to drinking water, health, the environment, economic inequality, the fight against all forms of discrimination, democracy, etc.
For a company seeking to commit to CSR, the 17 SDGs are a good starting point, as they enable the company to identify the expectations of its stakeholders. However, this alone is not enough to develop a ‘responsible’ strategy. Indeed, a company cannot address all 17 SDGs at once without running the risk of losing its way and adopting a totally incoherent CSR approach. It should therefore determine its priorities. Which stakeholders should it consider first? Which expectations are the most important? Standards such as ISO 26000 may also be necessary.
Q: India is the only country where a CSR law has been enacted and every company who falls under a certain criteria needs to mandatorily spend their 2% of their last 3 years’ average profit, on social development projects. Do you think that making such a law for CSR is good for all the social stakeholders? Why?
A: In many European countries, and to a lesser extent in America and Asia, the legislative framework requires companies to adopt measures for both social and environmental purposes. Throughout the world, this subject is being discussed and debated. Should we trust companies to voluntarily implement responsible approaches? Or, on the contrary, should public bodies impose a restrictive legislative framework on them? This question has long divided economists. Those who believe in the efficiency of the market and the ‘laissez-faire’ approach argue that the state should not intervene and that companies should be free to adopt responsible practices themselves. Conversely, those who argue for market regulation consider that, without sufficient legislative pressure, companies will continue to focus on financial performance, to the detriment of social and environmental objectives.
Recent history has shown that companies find it difficult to change their business practices voluntarily. Their governance focusses on satisfying the interests of shareholders, to the detriment of all other stakeholders. I think that measures such as those imposed by India (‘allocating 2% of profits to societal issues’) are a necessary step in accelerating the transition to more virtuous behaviour.
Q: Impact assessment for CSR projects has been one of the most controversial areas. What are the key conflict areas when companies assess the impact created by their CSR money?
A: Assessing the impact of CSR projects is highly complicated. For several decades, economists and managers have been debating how to measure a company’s overall performance (i.e. not solely its financial performance, but also its social and environmental performance). It should be noted that the way in which a company’s performance is assessed is no more than an agreed policy devised by individuals with their own vested interests.
Traditionally, we associate company performance with stock market value. However, this is an extremely simplistic view of value creation, which only concerns financial investors. It seems reasonable to expect that a company should create value for all its stakeholders (employees, consumers, suppliers, public authorities, etc.). The paradox of current financial standards is that they mask the ‘loss of wellbeing’ for certain stakeholders (deterioration of employee health, environmental pollution, etc.) to the exclusive benefit of shareholders.
Q: What key parameters should be there to judge whether a company’s CSR investment is actually creating social impact?
A: The issue of key parameters raises the need for a complete overhaul of accounting standards. Today’s accounting standards, such as IFRS (International Financial Reporting Standards), implicitly consider that man and nature are resources to be used for the purposes of developing ‘capital’, in the etymological sense of the term, i.e. finance. In fact, when we refer to ‘capital’, we never have to stipulate that we are talking about ‘financial’ capital… that’s how everyone understands it. Similarly, no one is shocked when we talk about ‘human resources’ and ‘natural resources’.
Accounting standards shape the way we consider companies and the way we manage them. They clearly encompass the idea of performance. They are political and determine the distribution of value in favour of some to the detriment of others. The implementation of a CSR approach is inextricably linked to a complete overhaul of accounting standards. In France, together with other researchers, we are advocating the introduction of new accounting standards in which man and nature would be considered as ‘capital’ to be preserved and enhanced just like finance. We would then speak of ‘triple capital’ accounting, with three invaluable capital assets: human capital, natural capital and financial capital. The company would have to generate value from all three. In addition, any damage caused to one of the capitals (e.g. loss of biodiversity, deterioration of employee health) cannot be compensated for in financial terms. A responsible company must do everything within its power to preserve human capital, as well as natural capital. These ‘capitals’ must be safeguarded.
Q: The Government Schemes/programmes and CSR, both are aimed at social development. How do you differentiate the scope and purpose between initiatives/projects taken by Government and Companies?
A: On an international scale, the economic contexts of individual countries vary greatly. It is not a question of differentiating between corporate social responsibility and that of public bodies. Instead, it is more a matter of ensuring the complementarity of the two. In developed countries, the state has the financial means to implement an ambitious social policy. However, it is not the same in developing countries. Paradoxically, it is in developed countries that companies are under the most pressure to behave responsibly: consumers are well informed and demanding, labour and environmental laws are in place, and there are effective control mechanisms for companies, etc. Yet it is in developing countries that responsible behaviour by companies would have the greatest impact. The challenge is therefore to ensure that multinational companies behave responsibly, especially in developing countries where there is limited pressure to do so, but where their actions could have significant effect.
Q: CSR projects are generally planned to create mid-term to long-term impact. But in situations like COVID pandemic, most of the companies brought in short-term projects to bring immediate help and assistance to the affected communities. However, critics say that bringing short-term relief to citizens is a state’s duty. What should be the best approach for the companies?
A: Once again, this depends on the economic situation of the country. During the health crisis, in the ‘rich’ economies, the state intervened extensively to assist the population and provide economic support to companies. It was therefore the public authorities that dealt with short-term needs. When the economy recovered, it was up to companies to help refinance the public deficit that had accumulated during this period. In this situation, companies were able to and had to maintain long-term social and environmental responsibility objectives.
Conversely, in developing countries, where the state did not have the financial means to support the population during the health crisis, the main challenge for companies in terms of responsibility was to compensate for the failure of the public authorities. For multinational companies with tremendous economic clout, this meant continuing to pay salaries so that local populations could continue to buy the necessities of daily life. In this situation, it was therefore a question of short-term responsibility that took precedence.
Q: Many times, lines are blurred between CSR and Marketing. With evolving industry practices, how do you see the CSR domain evolving in the next 8-10 years?
A: Making predictions is always extremely risky. No one could have foreseen COVID, or the war in Ukraine which generated a rise in inflation on a global scale. But fundamental changes are inevitable. Companies that focus solely on financial performance, to the detriment of people and the natural environment, are less and less tolerated. The ‘shareholder model’ seems to be dead or in any event, it can no longer be openly demonstrated. The ‘stakeholder model’ is gradually taking over. Today, almost all companies profess to be socially and environmentally committed. Their very acceptability by society is at stake, as are the markets for their products and, consequently, their medium/long-term economic viability.
The challenge for the coming years will be to ensure the reality of this commitment to social responsibility. Companies will have to prove that it is not simply green washing or doing a communication exercise. To achieve this, regulatory demands will have to become increasingly stringent, particularly in terms of extra-financial reporting: this will have to be accurate and well-defined so that fewer companies can slip through the net. Other necessary changes include a complete overhaul of the accounting models that I mentioned earlier. Finally, it is important not to forget that the younger generation is increasingly well informed and sensitive to sustainability issues. I am counting on them to continue to increase the pressure on companies to demonstrate genuine social and environmental commitment!
